A systematic approach to managing forex risk.

About client:

-    ABC Limited is a leading electric component of around $125 million and has a presence in over 50 countries.
-    The company hedges 100% of their confirmed orders through forward to mitigate risk.

Challenge and Observation:

-    The company used to cover 100% of their forex exposures only after the shipment was done. This exposed the company to forex risk while the product was under production.  
-    It also covered 100% of its exposure through forward contracts because of which it was not able to generate higher profits like its peers who kept a certain proportion of their        exposures unhedged.

Process:

-    IFA proposed to incorporate an appropriate hedging framework by considering the risk appetite of the firm and industry standard practices to hedge the exposures optimally.
-    A minimum and maximum hedge ratio of 60% to 150% was devised as per the monthly forex exposure for ABC Limited to mitigate a certain proportion of the risk and also benefit from the market movement.

Outcome:

-    Using IFA Global’s proprietary currency barometer, ABC Limited was able to capture the USDINR pair movement and generate higher treasury returns.
-    With our proprietary USDINR barometer suggesting INR to weaken in the medium term, we maintained the hedge ratio around 60% to 70% which helped the company realize their  unhedged inward remittances at a much higher rate of 83.
-    A suitable risk management framework and a treasury profit of INR 44 lakhs (an average of 55 paise on USD 8 million) ensured that ABC Limited got an edge over its competitors.

Services:

-    Treasury Risk Management Policy
-    Treasury Portfolio Management Services